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Although Experian is the largest credit bureau in the U.S., TransUnion and Equifax are widely considered to be just as accurate and important. When it comes to credit scores, however, there is a clear winner: FICO® Score is used in 90% of lending decisions.

It’s crucial that consumers understand at least the basics of how credit reports work and credit scores are calculated. After all, a high credit score will get borrowers the best deals on loans and credit cards, potentially saving them many thousands of dollars over a lifetime. Read on to learn how you can build a credit history that lenders will swoon over.

Will My Credit Score Be the Same Across the Board?

In a word, no. Credit scores vary depending on the company providing the score, the data on which the score is based, and the method used to calculate the score.

In an ideal world, all credit bureaus would have the same information. But lenders don’t always report information to every bureau, so there will be variations in your credit file — usually minor — from bureau to bureau.

How Are Credit Scores Calculated?

Regardless of the scoring model used, most credit scores are calculated with a similar set of information. This includes information like how many and what types of accounts you have, the length of your credit history, your payment history, and your credit utilization ratio.

Lenders like to see evidence that you have successfully managed a variety of accounts in the past. This can include credit cards, student loans, and mortgages, in addition to other types of debts. As a result, scoring models sometimes include the number of accounts you have and will also note the different types of accounts.

The length of your credit history shows lenders that you have a record of repaying your debts responsibly over time. Scoring models will factor in how recently your accounts have been opened.

Your payment history allows lenders to see how you’ve repaid your debts in the past. It will show details on late or missed payments and bankruptcies. Scoring models typically look at how late your payments were, the amount you owed, and how often you missed payments.

Each scoring model will place a different weight of importance on each factor. As an example, here are the weighting figures for your base FICO Score:

Payment History	35%
Credit Utilization	30%
Length of Credit History	15%
Credit Mix	10%
New Credit	10%

Recommended: Can You Get a First-Time Personal Loan With No Credit History?

Which Credit Score Matters the Most?

As noted earlier, the credit score that matters the most is your FICO Score, since it’s used in the vast majority of lending decisions. There’s really no way to determine which credit score is most accurate, though, because they all use slightly different scoring models to calculate those precious three digits.

Even within your FICO Score, there’s variation. The most widely used FICO Score is FICO 8. This differs from previous versions in key ways:

•   Credit utilization is given greater weight.

•   Isolated late payments are given less weight than multiple late payments.

•   Accounts gone to collections for amounts less than $100 are ignored.

In addition, FICO can tweak their algorithm depending on the type of loan you’re applying for. If you’re looking to get an auto loan, your industry-specific FICO Score may emphasize your payment history with auto loans and deemphasize your credit card history.

As you can see, slight differences in method can result in different credit scores even given the same source data.

What Are the Largest Three Credit Bureaus?

The three major credit bureaus are Experian, Equifax, and TransUnion. These bureaus collect and maintain consumer credit information and then resell it to other businesses in the form of a credit report. While the credit bureaus operate outside of the federal government, the Fair Credit Reporting Act allows the government to oversee and regulate the industry.

It’s worth noting that not all lenders report to the credit bureaus. You may have seen advertisements for loans with no credit check. Because these loans are riskier for the lender, they can justify high-interest rates (as much as 1000%) and faster repayment schedules. Consumers should beware of predatory lenders, especially risky payday loans and other fast-cash loans.

Recommended: What Is a Short-term Loan?

How To Find Your Credit Score

Your credit history and score play a large role in your personal finances. They can impact everything from taking out a mortgage or renting an apartment to buying a car and refinancing your student loans. Having an idea of what your credit score is can help you determine what your loan may look like and how much you can afford to borrow.

You can request a free copy of your credit report once a year from each of the major credit bureaus at AnnualCreditReport.com. Along with your credit file, you’ll receive a generic credit score. Experian also provides a look at your base FICO score. As an alternative, you may be able to access your FICO Score for free through your bank or credit card company.

Be careful when you pull your free credit reports not to accidentally opt in to an add-on service that will charge you for special tools or credit monitoring.

Building Strong Credit

Credit scores aren’t set in stone. They evolve constantly as new financial information comes in, both positive and negative. Here are some strategic steps to consider for those trying to build a positive credit history:

Make Payments on Time

This includes credit card payments, rent, loans, utilities, and any other monthly bills or payments. Lenders often consider past behavior to be a predictor of future behavior and want to avoid lending money to individuals with a history of missed payments.

Pay Down Revolving Credit

Revolving credit refers to credit cards and home equity lines of credit (HELOCs). Lenders generally like to see a credit utilization ratio of 30% or lower. It’s an indicator that the borrower can effectively manage their credit.

A debt consolidation loan is a popular choice for consumers looking to pay down high-interest revolving debt. An unsecured personal loan requires no collateral and offers comparatively low fixed interest rates compared to credit cards. (Variable interest rate loans are also available, but are not as popular in the current climate of rising interest rates.)

Getting approved for a personal loan is fairly straightforward, and you can shop around for the best personal loan interest rates without it affecting your credit score.

Recommended: Secured vs. Unsecured Personal Loans

Be Selective About New Accounts

Opening a new credit card or applying for a loan generally involves a hard credit inquiry. Too many hard credit inquiries can have a negative impact on the applicant’s score. So while having a diverse mix of credit is a good thing in the eyes of lenders, opening a number of new accounts at once may be counter-productive.

The Takeaway

All three major credit bureaus — Experian, Equifax, and TransUnion — are more alike than they are different, and any variations in their data are usually minor. Equifax is the largest credit bureau in the U.S., but TransUnion and Equifax are thought to be just as accurate and important. When it comes to credit scores, however, lenders prefer FICO Score by a wide margin.

SoFi Personal Loans

A personal loan is a popular way to consolidate and pay off credit card debt. You’ll have just one monthly payment to manage and a low fixed interest rate. To see how much a personal loan could save you, take a look at SoFi’s personal loan calculator.

Check your rate in 60 seconds without affecting your credit score, and get your loan funded as soon as the same day you’re approved.

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SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Under federal law, you are allowed to dispute information that shows up on your credit report both with the company that reported the information and with the reporting bureau that recorded it. There’s no fee for filing a dispute, and the credit reporting bureaus may make changes based on the information that you provide.

This can be great news if your credit report changes in your favor and your credit score gets a boost. However, it is possible that when information on your reports gets changed, your credit score actually takes a hit.

Here’s a closer look at why your credit score may have dropped after a dispute, plus other common reasons your score might drop.

Can a Dispute Hurt Your Credit Score?

When you dispute your credit report, it’s important to understand that the dispute itself does not cause your credit score to drop. In other words, you aren’t punished for questioning the information on your credit report. That said, the information in the dispute could have a negative impact on your score. For example, if the information in your dispute demonstrates that you have a lower credit limit than previously reported, your credit score could take a hit.

Common Reasons for Credit Scores to Drop

As you manage your credit score and work to build credit, there are a number of reasons your credit score may drop. Here’s what to look out for.

Recommended: What Credit Score is Needed to Buy a Car

Late or Missed Payment

Your payment history — whether you have a track record of paying off your debts on time — is a big part of how your credit score is calculated. In fact, it makes up 35% of your FICO score, which is calculated by the Fair Isaacs Corporation. Your score will likely fall if you make late payments or if you miss payments entirely.

Derogatory Remark on Your Credit Report

A derogatory mark on your credit report is a negative item that indicates you didn’t pay back a debt according to agreed upon terms with your lender. These marks tend to remain on your report for a long time, anywhere from seven to 10 years. Examples include bankruptcies, missed payments, debts in collection, foreclosures, and repossessions.

Change in Credit Utilization Rate

Your credit utilization rate indicates how much of your available credit you are currently using. You can find it by dividing your available credit by your current debt. The higher your utilization rate, the more debt you are carrying in comparison to the amount of credit you have, which may suggest that you’re overextended. Banks might get worried about your ability to pay off your loans. That’s why the amount you owe makes up 30% of your FICO score, and why a higher utilization rate can hurt your score.

Reduced Credit Limit

Your credit limit has an impact on your credit utilization rate. If your limit is reduced, your utilization rate could increase, hurting your credit score. You can lower your utilization rate by paying off some of your debts.

You can also ask one of your credit card companies to raise your credit limit. They’re usually happy to do it as long as your account is in good standing.

Closed Credit Card

The length of your credit history comprises 15% of your FICO score. When you cancel credit cards — when consolidating credit card debt, for example — you may be reducing your credit history. You could also be reducing your credit mix, which makes up 10% of your FICO score.

Recommended: 10 Credit Card Rules You Should Know

Paid off Loan

Similarly, paying off a loan might have a slight negative effect on your credit score because it can reduce your credit history and credit mix. That said, it could also have a positive effect on your record if it reduced your credit utilization rate.

Multiple Lines of Credit Opened or Applied for

New credit accounts make up 10% of your FICO score. Banks worry that when a person opens several lines of credit in a short period of time, they are at greater risk of defaulting on their loans. As a result, new lines of credit can ding your credit score.

Not only that, but simply applying for new credit can hurt your score. When you apply for a credit card or loan, your lender will make what is known as a “hard inquiry” to view your credit report. Lenders may see those seeking new credit as more risky, so hard inquiries can also have a negative effect.

Checking your own credit doesn’t lower your score. A credit check that doesn’t hurt your record is considered a “soft inquiry.”

Mistake on Your Credit Report

Mistakes on your credit report can lead to a lower score. That’s why it’s important that you monitor your credit report regularly and report errors to the credit reporting bureaus as soon as possible. You can request a free credit report from each of the credit reporting bureaus — TransUnion, Equifax, and Experian — once a year.

Identity Theft

Monitoring your credit report is also a good way to catch fraudulent behavior. If you’ve been subject to identity theft, bad actors may have used your personal information to open fraudulent accounts, which could have a negative effect on your credit score. Report these accounts immediately.

Types of Credit Report Errors to Look out for

When reviewing your credit report, look out for the following errors:

•   Personal information errors. Check your name, phone number, address, etc.

•   Accounts that belong to another person with the same name.

•   Fraudulent accounts that you didn’t open.

•   Account status errors. Check for closed accounts that are reported as still open, accounts incorrectly reported as late or delinquent, incorrect payment information, and the same debt listed more than once.

•   Balance and credit limit information that is inaccurate or out of date.

Correcting Errors on Your Credit Report

If you spot a mistake on your credit report, you can file a dispute with the credit reporting bureau. The mistake may be on your credit report with each bureau, so you may need to file a separate dispute with each.

You’ll need to file your dispute in writing and using the credit reporting bureau’s dispute form if they have one. Include documents that support your dispute, and be sure to keep a record of what you send.

Recommended: What is The Difference Between Transunion and Equifax

The Takeaway

Disputing information on your credit report can be an important part of ensuring that your credit score is as accurate as possible. You won’t be penalized for filing a dispute, though in certain circumstances, it is possible that your credit score will drop if information in your dispute has a negative impact on your credit.

To maintain a healthy credit score, carefully keep track of your finances and be sure to always make payments on time. With SoFi, you can get free credit score monitoring, spending breakdowns, and financial insights to help keep you on track.

Monitor all your account balances in one place with SoFi’s money tracker app.

FAQ

Why Did My Credit Score Go Down for No Reason?

Your credit score likely didn’t go down for no reason at all. It’s possible that a creditor reported new information to the credit reporting bureaus that had a negative impact on your credit report. Or there could be a mistake on your credit report. Regularly monitoring your credit report can help you catch errors.

Why Did My Credit Score Drop After Filing a Dispute?

Your credit score may have dropped after you filed a dispute if information in that dispute had a negative impact on your score. You are not penalized for filing the dispute itself.

Does Losing a Dispute Hurt Your Credit?

Losing a dispute does not necessarily hurt your credit, but it may leave it unchanged if the information you were hoping would boost your score is rejected.

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Photo credit: iStock/pepifoto

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Contrary to logic, a person’s starting credit score doesn’t begin at zero. In fact, no one’s credit score is zero. The lowest credit score is 300, but that doesn’t necessarily mean that’s a person’s starting score. If a person is just starting and has no credit history, they’re more likely to have no score.

So, for a person just beginning their credit journey, what is the starting credit score? Read on to learn the factors that impact this score from the beginning, and the habits to establish to ensure a better credit score.

How Your Credit Score Is Calculated

There’s no standardized starting credit score. That may be partly due to the factors that influence how a score is calculated. What a person’s done in their young credit history will impact their starting score.

The FICO® Score is widely used in the U.S. to help determine a person’s credit score. This FICO company uses the following to calculate its score:

Payment history

Payment history is the most important factor for any credit score, including a starting credit score. Paying on time and avoiding missed payments account for 35% of a person’s credit score. That’s why it’s important to pay everything from credit card bills to rent on time: Even a single late payment can harm a starting credit score.

Credit utilization

The second most important factor in a credit score is credit utilization, which makes up 30% of a person’s score. Credit utilization is the percentage of their available credit a person actually uses. The ideal credit utilization ratio is 30% or under.

Length of credit history

How long someone’s accounts have been open makes up 15% of their credit score. The longer an account has been open, the higher the credit score.

While it’s out of their hands, consumers who are just beginning to establish credit will likely be negatively impacted by this factor, lowering their starting credit score.

Recommended: How to Get a Personal Loan With No Credit History

Credit mix

Making up 10% of a person’s credit score, credit mix refers to the different types of credit a person has. Generally, the two types of credit are:

•   Installment loans. Think car loans, student loans, and mortgages.

•   Revolving credit. Including credit cards and home equity lines of credit (HELOCS).

If an individual can manage different types of credit without late or missed payments, it reflects well on their score.

Recommended: Does Net Worth Include Home Equity

New credit

Opening multiple new accounts at a time? This factor accounts for 10% of a credit score. New credit includes “hard inquiries” as well as opening new accounts.

For a person with a starting credit score, they may have all, none, or some of these factors on their credit history. The mix varies from person to person, making it hard to predict one starting credit score for everyone.

Recommended: Should I Sell My House Now or Wait

What Is a Good First Credit Score?

Unfortunately, a starting credit score won’t be the perfect 850. More likely it’s in the Good (670-739) or Fair credit score (580-669) range.

That’s mostly because of their limited payment history. If a person just opened a credit card or started paying back student loans, the credit bureaus don’t see an established history of timely repayment. Even if the consumer has never missed a payment, payment history is limited.

Similarly, the length of credit history is short, perhaps only a few months, which doesn’t give lenders enough data to judge a consumer as low- or high-risk.

Recommended: What Credit Score is Needed to Buy a Car

Ways to Establish Good Credit

While it can be discouraging that a starting credit score is penalized just for being new, it doesn’t take long to build credit with a few simple habits:

•   Paying bills on time will continue to be important, as payment history is a major factor in a credit score.

•   Keeping accounts open and in good standing, even if they’re no longer used, can help lengthen a person’s history.

•   Adding to the credit mix with a personal loan, credit-builder loan, or other types of credit can boost the credit mix.

•   Paying bills in full can help keep the credit utilization ratio balanced at 30% or below.

•   Not applying for too much at once will avoid the pitfall of too many hard inquiries and new accounts, which can have a negative impact.

While an individual can proactively try to improve their score, a good portion of a credit score comes from paying bills consistently over time.

Establishing good habits, and continuing them, will likely lead to a higher credit score.

Recommended: When Do Credit Card Companies Report to Credit Bureaus?

Why Your Credit Score Is Important

It may be just a three-digit number, but a good credit score is a gateway to better financial opportunities. With a Very Good (740-799) or Exceptional (800-850) credit score, borrowers have better odds of being approved for loans and may even have better repayment terms or more favorable interest rates.

Businesses and lenders may pull your credit history to confirm your qualifications for any of the following:

•   Credit cards

•   Mortgages

•   Rental apartments

•   Job applications

•   Car loans

•   Personal loans

•   Student loans

With a low credit score, or no credit score, getting favorable terms or qualifying for anything above could be challenging.

How to Check Your Credit Score

Checking a credit score isn’t just a good way to track progress. It can also highlight any incorrect or fraudulent activity tied to a person’s name.

Monitoring a credit score is free and easy. Anyone can get their free FICO Score annually from Experian using AnnualCreditReport.com. The site allows visitors three free reports annually, one from each credit bureau.

In addition, credit card companies and lenders often offer free credit score reporting on their portals.

Recommended: What is The Difference Between Transunion and Equifax

The Takeaway

Having a starting credit score doesn’t mean starting from zero – or with a perfect 850. Consumers may start at a Fair to Good level. Working to establish healthy credit habits, such as paying bills on time and in full, will raise their credit score. That’s important because the higher your credit score, the more financial opportunities you will have.

SoFi’s money tracker app helps those starting on their credit journey. With free credit monitoring tools, users can track their credit score in real time, with customized insights to help improve their credit.

Getting your financial goals on track starts with your credit score.

FAQ

What are the FICO credit score ranges?

FICO® credit scores range from 300 to 850.

Can you have a credit score without a credit card?

Yes. Credit scores aren’t based solely on credit cards. The score takes into account student loans, rent, and utility payments.

What are the differences between FICO, Experian, and Equifax?

Experian and Equifax are credit bureaus that create credit scores and compile credit histories. FICO® creates its own credit score. All three companies provide slightly different credit scoring models.

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Photo credit: iStock/blackCAT

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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Canceling a credit card might seem like a good idea if you’re trying to get debt under control or you want to consolidate your cards. But closing a credit account may do more harm than good and damage your credit standing. Before you take action, here’s what you need to know — and other strategies you may want to consider instead.

Understanding the Impact of Credit Utilization Ratio

In order to understand why canceling a credit card can hurt your credit score, you need to know about something called the credit utilization ratio. This is the ratio of your total credit to your total debt.

Another way to think of it is how much of your available credit you’re using. For instance, if you have two credit cards with a total line of credit of $20,000 and you use $5,000 of that, you have a credit card utilization ratio of 25%. In addition to credit cards, your credit utilization ratio can include things like loans, such as a mortgage, car loan, and personal loan.

Your credit utilization ratio directly affects your credit score. In fact, it accounts for 30% of your FICO score. Your credit utilization ratio is the second most important factor in your credit score (payment history is number one). Ideally, lenders like to see a person’s credit utilization ratio below 30%.

When you cancel a credit card, you reduce your available credit, which can cause your credit utilization ratio to jump up, especially if you owe money on other credit cards. This can negatively impact your credit score.

Reasons to Cancel a Credit Card

There are several factors that may be motivating you to want to cancel a credit card, including:

•   Too much debt. Perhaps having the card on hand is causing you to overspend and take on even more debt. If canceling the card will help you manage your finances better and get your debt under control, it can be a good option.

•   A high annual fee. If the card’s fee is high and you aren’t taking advantage of any of the perks like travel rewards to offset it, you may want to find a card that’s a better fit.

•   Too many cards. If multiple credit cards are causing you to stress out and miss payments, fewer cards might help lighten the load.

How to Cancel a Credit Card

If, after considering the pros and cons, you’ve decided to go ahead and cancel the credit card, here’s how to do it:

1.    Pay off the remaining balance on the card, or transfer the balance to another credit card.

2.    Contact the credit card company, preferably by phone. Some credit card companies allow customers to cancel online, but most will require a call. Keep in mind the company wants to hold onto customers, which could mean that they will try to entice you with offers or deals. You have the right to cancel at any time.

3.    Consider sending written confirmation to make things official. Send a letter to the credit card company informing them that you have canceled the same credit card account. Post it via certified mail to ensure the company receives the letter with confirmed receipt.

4.    Look at credit reports for changes to your credit score. The canceled account should be reflected in your credit score within several weeks. AnnualCreditReport.com offers a free copy of your credit report once a year.

5.    Cut up the card. Shredding or destroying the card helps prevent fraud.

Can Closing a Credit Card Impact Your Credit History?

Closing a credit card can affect the length of your credit history. That’s important because credit history is one of the factors used to help determine your credit score. In general, creditors want to know that you’ve had credit accounts over a period of time, so the longer the relationship, the better.

Recommended: 10 Credit Card Rules You Should Know

How to Downgrade Your Credit Card

If you’re considering canceling your credit card because of high fees or a high interest rate, you might want to downgrade the card instead. By downgrading you can swap your current credit card for one with a lower fee or lower interest rate.

Downgrading can provide some of the benefits of canceling the card without the negative impact of closing the account.

If downgrading sounds like a good option for you, these strategies can help:

•   Research the credit card issuer. Do they have cards with a low or no annual fee? It may be worth switching to credit card issuers with one of those.

•   Call the credit card company and ask for a downgrade. They may offer to waive the annual fees on your existing card. Or they may downgrade you to a low-interest card with no annual fee.

•   Ask about a partial refund. Some credit card companies will provide a partial refund on the annual fee, depending on when you downgrade. Ask the customer service representative if they can prorate the annual fee or provide any refund.

How to Keep Your Credit Utilization Rate Low

Whether you downgrade a credit card or not, it’s important to improve your credit utilization rate since it counts for 30% of your FICO score. Here’s how to keep yours low.

•   Make more than one credit card payment a month. Making more than two automatic bill payments or one payment per billing cycle can benefit your credit score. That’s because credit card companies report balances towards the end of the billing cycle. Making several payments can reduce your credit utilization ratio when your balance is reported.

•   Keep credit accounts open, if possible. Keeping a card open, even if you rarely use it, increases your credit limit and helps lower your credit utilization rate.

•   Ask for an increase in credit limit. If you have a record of ontime payments, your credit card company may be willing to increase the credit limit for your account. And the more available credit you have, the better your ratio. Call customer service to make the request.

The Takeaway

Canceling a credit card can negatively impact your credit score, so make sure to consider all your options carefully. You can keep the credit account open, which can help with your credit history, and rarely use the card. Or you can downgrade to a card with a lower interest rate and no annual fee. In the end, the decision is yours, but it’s good to know you have choices.

You can track your credit score with SoFi’s money tracker app. It helps you stay up to date with any changes that affect your score, allows you to connect all your bank accounts, and lets you monitor your spending habits and savings all in one place.

With SoFi, you’ll always know where your credit score, and your finances, stand.

FAQ

How do I close a credit card without affecting my credit score?

Closing a credit card is likely to have a negative impact on your credit score. Downgrading to a card with a lower interest rate and no annual fee may be a better option.

Is it better to cancel unused credit cards or keep them?

If the credit card has a low interest rate and no annual fee, it can be better for your credit score and your credit history to keep the card.

Does canceling a credit card hurt your credit?

Canceling a credit card can hurt your credit score. However, practicing other good credit habits, like paying your bills on time, can help you gradually get back in good standing.

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Photo credit: iStock/Doucefleur

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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One of the most important chores on any financial to-do list is to regularly review your credit reports for errors. If an error does appear, disputing it is a fairly simple process with a big potential payoff: It might improve your credit score.

Keep reading to learn how to dispute a credit report and win.

How to Get an Accurate Credit Report

Consumers can access their credit reports for free every 12 months from the three major credit bureaus: Experian, TransUnion, and Equifax. These credit reporting companies feature similar but not identical data, and any errors may appear on one or more reports.

There are three ways to request a report:

•  Online: AnnualCreditReport.com

•  Phone: (877) 322-8228

•  Mail: Download an Annual Credit Report Request form from the URL above, and mail it to:
Annual Credit Report Request Service
P.O. Box 105281
Atlanta, GA 30348-5281

You can request all three reports at once or each one at different times without paying a fee. Helpful hint: By ordering one at a time and spacing out requests every four months, you can be fairly confident about catching major issues while they’re fresh and easier to dispute. For example, you might order the Experian report in February, the TransUnion one in June, and Equifax in October – all for free.

After your free annual access has ended, you can pay to check your credit reports as often as you like. Credit reporting companies can’t legally charge a consumer more than $13.50 for a report. It’s also possible to access credit reports through specialty consumer reporting companies, some of which charge a fee.

Recommended: What is The Difference Between Transunion and Equifax

Why It’s Important to Correct Mistakes in Your Credit Report

Credit reports generally make it easy to spot negative financial information like missed payments. However, take care to review your credit report for other incorrect data, however minor, such as former addresses and employers. Common credit report errors include inaccurate bank balances, duplicate account info, and false late payments.

In case of an error, take steps to have the mistake removed as soon as possible. Credit report errors can lead to a bad credit score, impact loan applications, or raise your interest rate. Bad marks on a credit report can also affect your employment options, insurance premiums, and ability to rent an apartment.

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How to Dispute Errors on Your Credit Reports

To dispute an error on a credit report, you’ll need to contact each credit bureau that published the error. Mistakes can appear on one report only or all three. Each credit bureau has its own dispute process, so check the instructions on AnnualCreditReport.com or the individual credit bureau sites. You’ll likely need to fill out a dispute form and provide supporting documentation that helps prove an error was made.

If your dispute is accepted, follow up to make sure the credit bureau and the business that supplied the incorrect information update their records accordingly. If a mistake is easy to prove, start with the business that made the error. Be aware that credit bureaus and businesses cannot charge you to correct errors on your report.

In the case that a mistake on a credit report is due to identity theft, it’s important to report that to IdentityTheft.gov and get a personalized recovery plan.

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Example Letter for Disputing a Mistake on Your Credit Report

Usually, a dispute needs to be submitted in writing. If you submit a letter via the Post Office, send it certified mail with “return receipt requested.” That way you have proof that the credit bureau received the letter.

The following information should generally be included in a dispute letter:

Identifying Information

The date, consumer’s name, and their address all need to be included in the letter.

Each Item That Needs Disputing

Whether there is one error or many, each one should be outlined briefly and clearly. Identify each error, explain why the information is wrong, and supply the correct information if applicable. Then request to have the error corrected or removed.

Copy of the Credit Report

It can be helpful to enclose a copy of the credit report with the errors circled. Don’t send any original documentation with your letter. Make copies and keep the originals safe in case they are needed again.

Why Consider Credit Score Monitoring

To efficiently keep an eye on your credit reports, you may opt to use a credit monitoring service. These services will update account holders when certain credit updates appear, such as new accounts, hard inquiries, high credit card balances, or a missed payment.

Not only does credit monitoring make it easier for consumers to stay on top of their credit and work toward improving their credit score, but it can help catch fraud and identity theft early.

How to Report Credit Scams

If you suspect you’ve been the victim of a credit scam, report it to IdentityTheft.gov, a division of the Federal Trade Commission. They will provide a personalized recovery plan, walk you through the steps, track your progress, even pre-fill forms and letters for you. Then, you should dispute any false information on your credit report.

The Takeaway

Disputing and correcting errors on your credit report is usually straightforward, as long as the mistake can be proven. Whenever possible, reach out directly to the business that reported the mistaken info. Then follow the dispute instructions for each of the three major credit bureaus: Experian, TransUnion, and Equifax. Regularly review your credit reports annually to catch errors early, before they negatively affect your financial record – and your life.

For extra help monitoring your credit, turn to SoFi’s money tracker app. You can monitor your credit score at no cost, with weekly updates to help you stay on top of your financial wellbeing.

With SoFi, you’ll know where your finances stand — and knowledge, as is often said, is power.

FAQ:

Who always wins a credit dispute?

There is no one party or side that always “wins” a credit dispute. If the consumer can document that an error was made, they will likely win the dispute.

What reason should I put for disputing a credit report?

The reason for disputing an error on a credit report can be a typo, outdated information (more than seven years old), data that belongs to another consumer, or fraud, among other things. Include any supporting documentation you have to help strengthen your argument.

Does disputing a collection notice reset the clock?

No, but a dispute does pause the clock in regard to bill collectors. Once you dispute a debt in collections, the collections agency can’t contact you again until they have provided verification of the debt in writing to the consumer.

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Photo credit: iStock/mediaphotos

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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